The Obama Economy
Obama is the new FDR -- the man who created the Great Depression by his anti-business policies
As 2009 opened, three weeks before Barack Obama took office, the Dow Jones Industrial Average closed at 9034 on January 2, its highest level since the autumn panic. Yesterday the Dow fell another 4.24% to 6763, for an overall decline of 25% in two months and to its lowest level since 1997. The dismaying message here is that President Obama's policies have become part of the economy's problem.
Americans have welcomed the Obama era in the same spirit of hope the President campaigned on. But after five weeks in office, it's become clear that Mr. Obama's policies are slowing, if not stopping, what would otherwise be the normal process of economic recovery. From punishing business to squandering scarce national public resources, Team Obama is creating more uncertainty and less confidence -- and thus a longer period of recession or subpar growth.
The Democrats who now run Washington don't want to hear this, because they benefit from blaming all bad economic news on President Bush. And Mr. Obama has inherited an unusual recession deepened by credit problems, both of which will take time to climb out of. But it's also true that the economy has fallen far enough, and long enough, that much of the excess that led to recession is being worked off. Already 15 months old, the current recession will soon match the average length -- and average job loss -- of the last three postwar downturns. What goes down will come up -- unless destructive policies interfere with the sources of potential recovery.
And those sources have been forming for some time. The prices of oil and other commodities have fallen by two-thirds since their 2008 summer peak, which has the effect of a major tax cut. The world is awash in liquidity, thanks to monetary ease by the Federal Reserve and other central banks. Monetary policy operates with a lag, but last year's easing will eventually stir economic activity.
Housing prices have fallen 27% from their Case-Shiller peak, or some two-thirds of the way back to their historical trend. While still high, credit spreads are far from their peaks during the panic, and corporate borrowers are again able to tap the credit markets. As equities were signaling with their late 2008 rally and January top, growth should under normal circumstances begin to appear in the second half of this year.
So what has happened in the last two months? The economy has received no great new outside shock. Exchange rates and other prices have been stable, and there are no security crises of note. The reality of a sharp recession has been known and built into stock prices since last year's fourth quarter.
What is new is the unveiling of Mr. Obama's agenda and his approach to governance. Every new President has a finite stock of capital -- financial and political -- to deploy, and amid recession Mr. Obama has more than most. But one negative revelation has been the way he has chosen to spend his scarce resources on income transfers rather than growth promotion. Most of his "stimulus" spending was devoted to social programs, rather than public works, and nearly all of the tax cuts were devoted to income maintenance rather than to improving incentives to work or invest.
His Treasury has been making a similar mistake with its financial bailout plans. The banking system needs to work through its losses, and one necessary use of public capital is to assist in burning down those bad assets as fast as possible. Yet most of Team Obama's ministrations so far have gone toward triage and life support, rather than repair and recovery.
AIG yesterday received its fourth "rescue," including $70 billion in Troubled Asset Relief Program cash, without any clear business direction. (See here.) Citigroup's restructuring last week added not a dollar of new capital, and also no clear direction. Perhaps the imminent Treasury "stress tests" will clear the decks, but until they do the banks are all living in fear of becoming the next AIG. All of this squanders public money that could better go toward burning down bank debt.
The market has notably plunged since Mr. Obama introduced his budget last week, and that should be no surprise. The document was a declaration of hostility toward capitalists across the economy. Health-care stocks have dived on fears of new government mandates and price controls. Private lenders to students have been told they're no longer wanted. Anyone who uses carbon energy has been warned to expect a huge tax increase from cap and trade. And every risk-taker and investor now knows that another tax increase will slam the economy in 2011, unless Mr. Obama lets Speaker Nancy Pelosi impose one even earlier.
Meanwhile, Congress demands more bank lending even as it assails lenders and threatens to let judges rewrite mortgage contracts. The powers in Congress -- unrebuked by Mr. Obama -- are ridiculing and punishing the very capitalists who are essential to a sustainable recovery. The result has been a capital strike, and the return of the fear from last year that we could face a far deeper downturn. This is no way to nurture a wounded economy back to health.
Listening to Mr. Obama and his chief of staff, Rahm Emanuel, on the weekend, we couldn't help but wonder if they appreciate any of this. They seem preoccupied with going to the barricades against Republicans who wield little power, or picking a fight with Rush Limbaugh, as if this is the kind of economic leadership Americans want.
Perhaps they're reading the polls and figure they have two or three years before voters stop blaming Republicans and Mr. Bush for the economy. Even if that's right in the long run, in the meantime their assault on business and investors is delaying a recovery and ensuring that the expansion will be weaker than it should be when it finally does arrive.
Source. Background on FDR here, here, here, here and here
Brookes News update
Obama's spend, tax and borrow policies will wreck the US economy : Obama's massive spending binge is built on a myth. A myth that could have the severest consequences for American living standards. His administration's understanding of how economies works is minus zero. He and his advisors are infatuated with statist solutions for problems created by statist policies and lousy economics
American union leader's wage argument collapses along with Krugman's : Mike Fishman, like his fellow union leaders, is a thoroughgoing economic ignoramus who doesn't give a stuff about America. His argument in favour of compulsory unionism is totally dishonest and anti-democratic. Moreover, the idea that unions raise living standards is a dangerous myth that the left and the Democrats have fostered. If Obama gets his way union militancy could see a replay of 1937 when it destroyed a potential economic recovery
What is Obama's 'Stimulus' bill all about? : Obama's phony stimulus will supply the corrupt Democratic Party with billions of taxpayers' money for years to come. It will give it opportunity to become the dominant political party for the next generation massive payoffs to the special interests, creating millions of dependents and setting up more bureaucracies that will defend their interests, They want a one-party system headed by a popular man and they damn well intend to get it. By electing Obama did America's inadvertently deal a fatal blow to the very foundation of their republic?
The Obama Steamroller: Is resistance futile? : If Obama wins two terms he will turn the US into a European like economy, with much slower growth prospects, crushing deficits, increased entitlement and spending as far as the eye can see. And of course, there will be the need for ever higher tax rates on the diminishing share of the population who pay income taxes, and for ever larger amounts of debt to be financed mostly by foreigners. Europe will have arrived. Obama will have succeeded in his dream to destroy America as a superpower. He will have done to the US what Peron did to Argentina. It won't be "Don't cry for me, Argentina" but "Don't cry for me, America"
Obama's Economics: Financial Stability, or Fascist Decline?: History and economics is not on the side of the Obama administration. Yet as long as he continue to insist on a government solution, so long will the market continue to flounder and corporations fail. And the blame will rest securely on his government which will have manipulated the economic crisis for its own selfish ends
Mandating markets for wind power - a stealth tax on electricity consumers : Federal and some state governments stand accused of trying to impose stealth taxes on electricity consumers by forcing power retailers to buy expensive power from inefficient and costly renewable energy sources. There are no climate benefits whatsoever in forcing consumers to buy an increasing proportion of their electricity from expensive and unreliable suppliers like wind farms
Obama's Crooked Cabinet: Yet Another Post Nominee Turns Out to Be a Tax Evader: "Former Dallas mayor Ron Kirk, who is President Obama's nominee to be the U.S. trade representative, failed to pay almost $10,000 in taxes during the past three years because of a series of mistakes, the Senate Finance Committee said this week. Kirk's errors involved honoraria from speeches, on which he should have paid taxes; the cost of sports games, for which he deducted too much; and improper treatment of accounting fees on his income taxes. Kirk has agreed to file amended returns, the Washington Post reports. An Obama spokesman declared the issues "minor" and said the administration is confident that the nomination is on track for a scheduled hearing Monday with the Finance Committee. "
Useless British regulator: "The Financial Services Authority is facing a multimillion-pound compensation claim from a group of investors who say that the City watchdog failed to stop the activities of a suspected rogue trader. Former clients of GFX Capital Markets, which has collapsed with estimated losses of œ44 million, say that the FSA knew of serious concerns about its boss, Terry Freeman, but allowed him to continue trading. The accusation comes as the regulator is struggling to cope with the most serious loss of public confidence in its decade-long history. It was accused of being negligent in its monitoring of Northern Rock, the mortgage lender that was nationalised last year, and the regulator's chairman, Lord Turner of Ecchinswell, has been forced to draw up radical plans to improve its ability to police the City. The Times understands that FSA officials had gathered intelligence on Mr Freeman, 60, a foreign exchange trader, for more than two years. The authority knew that he had changed his name after being disqualified as a director in response to a conviction."
Dumb Turkish pilots caused crash: "A faulty altimeter and apparent inattention by the pilots caused the Turkish Boeing 737 crash in Amsterdam, the accident investigation showed yesterday. The investigators' preliminary report confirmed the widespread theory that the pilots let the automatic systems slow the plane to a dangerously low speed as it approached Schiphol airport. At 450ft, as the pilots scrambled to speed up, it stopped flying and flopped on to the ground, killing the three flight deck crew and six others on board. The radio altimeter had "told" the automatic flight system that the plane was 8ft below the surface when it was still nearly 2,000ft in the air. This caused the autothrottle to pull back the power to idle, as if the plane were touching down. Normally, pilots are expected to monitor the performance of the automated approach system. According to a conversation recorded between the plane's captain, first officer and an extra first officer on the flight, the pilots had noticed the faulty altimeter earlier but did not consider it a problem and did not react" [Contrast that with the video here]
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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)